Independent power producers are rooting for shared regional projects after the governments of Rwanda, Burundi and Democratic Republic of Congo signed project agreements for the 147MW Ruzizi III hydroelectric dam.
The agreement was signed in Kinshasa on July 29 between the three governments and IPS – the industrial and infrastructure development arm of the Aga Khan Fund for Economic Development – and SN Power, the Norwegian international renewable energy company wholly owned by Norfund.
SN Power and IPS – which also jointly own the 250MW Bujagali hydropower plant in Uganda – say this deal is the way to go for IPPs as it sets a global benchmark for regional power generation.
“This project sets a unique precedent for public-private partnership projects globally,” says Galeb Gulam, chief executive of IPS Ltd.
“Ruzizi III is the first privately financed project in sub Saharan Africa that will utilise a common regional resource to generate power that will be shared equally between three countries.” II is the first privately financed project in sub Saharan Africa that will utilise a common regio
But while the consortium targets a consumer market of potentially 30 million in the region, initial figures show the unit cost of power from the project at an estimated US 11-13 cents per kWh.
But for the target region where more than 70 per cent of the population live below $1 a day, this price is still prohibitive.
Indeed, in a press release issued after the signing in Kinshasa SN Power and IPS conceded this reality, citing the high poverty levels in the target population where electricity access rates averages 6 per cent.
The two firms say that the tariff – similar to that of Bujagali until 2018 – is a result of the project cost for Ruzizi III, which is estimated at $600 million-$700 million, dictated by the nature of the project’s financing blend of debt equity and grants.
“Considering the remote and challenging location of the power project, maintaining an affordable tariff is crucial. Financing of the project will, therefore, entail the largest blended financing in the region comprising of a unique combination of concessional funds, commercial debt, grants (contracting state equity) and privately financed equity,” explained Mr Gulam.
Concessional funding is expected to be provided by Africa Development Bank, the European Investment Bank, the European Union, KfW, AFD and the World Bank.
For IPS, Ruzizi III will be part of the Africa Power Platform that was recently established by IPS, CDC and AKFED. However, the developers could not reveal the potential commercial banks from which they will borrow for construction of the project.
The project is expected to reach financial close in 2021 and be operational in 2025/ 2026. Once commissioned, Ruzizi III will double Burundi’s current capacity, increase Rwanda’s installed capacity by 33 per cent and provide much needed baseload power in eastern DRC, a region that is otherwise isolated from DRC’s interconnected grid.
“This project will generate clean and renewable power, reducing the region’s reliance on expensive thermal generation that currently costs in excess of US 35 cents per kWh,” added Erik Knive, president and chief eexecutive of SN Power, a leading developer of hydropower projects in emerging markets.
The project is structured as an independent power project based on a build, own, operate, transfer arrangement and underpinned by a 25-year concession agreement and power purchase agreements.
The respective national utilities will be responsible for developing the transmission lines that evacuate the power from the main substation at Kamanyola to the principal load centres.
Dr Kevin Kariuki, head of infrastructure at IPS, said signing the project agreements is a “significant milestone” considering the long journey since the consortium was selected.